The 10th edition of the Board Practices Report, which is based on a survey of 189 members of the Society for Corporate Governance, indicates that boards also are thinking about activists, with 74% of respondents reporting their boards are discussing how to prepare for shareholder activism—up from 55% in 2014—and 27% noting they have been approached by an activist in the past year.

Deborah DeHaas

“This report helps us to understand how boards are navigating the most pressing issues companies face in their current environments,” says Deborah DeHaas, vice chair and national managing partner, Deloitte’s Center for Board Effectiveness, and chief inclusion officer, Deloitte. “Boards are working on multiple fronts to more effectively engage with shareholders, enhancing strategies for emerging risks and re-evaluating board composition as a way to successfully take on these responsibilities,” she adds.

Board refreshment and composition are other key focus areas the survey found, with 78% of respondents having adopted some form of refreshment policy. Of these respondents, 75% have age limits, and 5% have term limits. Nearly two-thirds of the surveyed professionals indicate their boards added a new director in the past year, up from half in 2014. The changes resulted mainly from resignations and planned retirements, though 22% attribute the change to keeping the board fresh, and 15% report it was to achieve greater diversity (e.g., gender, race, ethnicity, generation/age).

On gender, the survey found that large cap companies have the highest level of women directors, with 40% of respondents having three women and 16% having four or more. Approximately 70% of respondents, overall, report having at least two women on their board. Fifty-two percent of surveyed professionals have one or two board members of a racial and/or ethnic minority.

According to the survey results, 46% of large cap companies and 42% of all companies surveyed monitor progress against the company’s strategic plan at every board meeting. Further, more than two-thirds (71%) of respondents report their boards participate in an annual strategy retreat with management.

Darla Stuckey

“Companies continue to grapple with complex operational, economic and geopolitical risks,” observes Darla Stuckey, president and chief executive officer of the Society for Corporate Governance.

“It is vital for boards to work with management to navigate risks and opportunities with a comprehensive and adaptable strategy. This is why we see those surveyed emphasizing the amount of time they dedicate to developing and executing a resilient strategy,” Ms. Stuckey says.

Ethics and Compliance

More than half (63%) of respondents say the audit committee has the primary responsibility for oversight of the compliance program at the board level. Six percent note that the regulatory/compliance committee handles that responsibility, and 5% say it’s the risk committees that oversee their compliance program. There was a slight uptick in the trend of board committees overseeing compliance programs versus the full board, with 9% of respondents saying the full board bears the responsibility in the latest survey, compared to 14% in 2014.

The chief compliance/ethics officer is the individual most commonly responsible for reporting compliance and ethics matters to the board, according to 69% of respondents, followed by the general counsel or other in-house counsel (57%). With regard to the type of compliance reporting that is provided to the board or executive management, 81% of respondents selected reporting on compliance violations, 69% selected structure and performance of the compliance program, and 65% chose regulatory compliance auditing and monitoring findings/results.

When asked what activity their companies engage in to reinforce the proper tone at the top, 97% of respondents selected a code of conduct/ethics. Newsletters and email messages (81%) and annual or other periodic training/education (75%) were also cited.

Additional Findings

Following are other findings from the survey.

Audit committee practices: About 80% of audit committees regularly hold an executive session with external and internal auditors, 61% have regular executive sessions with the CFO, and 44% hold regular executive sessions with their general counsel or other in-house counsel.

Shareholder sentiment: Fifty-five percent of all boards and 62% of large cap company boards are being updated on shareholder sentiment and concerns more than once a year.

Compensation: Almost half (46%) of respondents say their board equity plans have compensation limits, with 28% of financial services industry (FSI) plans having limits, compared to 51% of non-FSI companies.

Tenure: The most commonly cited average tenure of non-management directors is nine years, but that figure reflects only 15% of respondents. Six years was a close second.

New Director Criteria: Top recruitment criteria include industry experience, active CEO status, financial expertise, Technology/IT and international business exposure.

Sustainability: Nearly 60% of surveyed companies provide some form of sustainability disclosure, and 42% provide a formal report. In addition, 28% of respondents incorporate specific sustainability-related goals in company strategy; another 9% are considering it.

Disclosures: Forty-one percent of companies surveyed reported their audit committees go beyond what is required with regard to audit-committees related disclosures in the proxy statements, with 59% of large cap audit committees disclosing more than what is required.

Proxy issues: Majority voting in uncontested director elections, a continual proxy season hot topic, is the standard at 72% of respondent companies, up from 63% since 2014. Fifty-four percent of companies allow shareholders to call special meetings; 41% of those companies require an ownership threshold of 25%, while about one-quarter of the companies have a 10% or less threshold.

About the Report

Results from the 2016 Board Practices Report are based on the responses from 189 individuals from the membership of the Society of Corporate Governance. This is the 10th edition of the Board Practices Report. It presents findings from a survey distributed in the third quarter of 2016 to the public company members of the Society. The survey covered more than 15 areas of board practices and hot topics, and included 99 questions. Survey results are presented by market capitalization, financial services and nonfinancial services industries, and all companies in total.

FX

Related Deloitte Insights

Entering 2018, perennial challenges facing boards include strategy, risk, compensation, shareholder engagement and regulatory uncertainty. The list also includes recent developments regarding board composition, social responsibility, technology risk, conduct and culture risk, and the combination of innovation and disruption. Learn more about what investors, regulators and other constituencies may expect boards to address this year.

Internal auditor groups are continually challenged to provide more value to stakeholders while enhancing organizational influence and impact. However, many efforts to address these challenges are not working—or not working quickly enough. An agile internal audit function can provide methods that work to change both the mindset of internal auditors and their work processes. Learn the key concepts that help build an agile internal audit function, and understand how applying a few agile practices can provide a glimpse into the methodology’s transformative power.

In recent years, the UK government has taken steps to advance the number and role of women in management and on boards, but progress is in the early stages. That was the general view of more than 40 women executives attending a panel discussion led by Deloitte’s UK CFO Programme. Issues discussed included whether existing targets are necessary and effective, investors’ changing views about diversity and inclusion, and the importance of understanding boards’ individual styles and networking when seeking a board position.

Views & Analysis

Congress passed the first major tax reform legislation since the 1980s, bringing sweeping changes that will impact life sciences and health care organizations and their executives’ business decisions in 2018 and beyond. David Green, partner, Life Sciences and Healthcare Industry leader, Deloitte Tax LLP, discusses the new tax law and its potential implications across the health care industry—from biopharma and medtech companies to health plans and not-for-profit hospitals and providers.

Now that Congress has passed tax reform, CFOs and their tax teams face the challenge of understanding and preparing for sweeping changes ushered in by the new law. The transition to territoriality, new rules regarding passive and mobile income, and many other provisions will require careful assessment and planning. “While the broad-based bill ushers in substantial changes, companies may find it particularly challenging to assess the many ways in which the law’s provisions affect international operations,” says Steve Kimble, chairman and CEO, Deloitte Tax LLP. Learn more about the scope and implications of some of the most notable provisions of the new law that impact international operations.

The tax reform legislation introduces new rules aimed at providing greater parity between the tax rates applicable to owners of passthrough entities and corporations by providing a 20% deduction for qualified business income. The potential tax scenario for passthrough entities depends on the operations of the organization, the make-up of its ownership and where it does business. Implementing the new legislation will require a focus on business considerations, as well as tax issues.

Editor's Choice

Commercial real estate (CRE) could benefit by using blockchain for property transactions processes involving leasing, purchasing and sales, according to a Deloitte Center for Financial Services report. The report identifies how blockchain could improve property transactions processes, including more transparent and more cost-effective property title management. “CRE CFOs evaluating an upgrade or overhaul of their technology platforms should have blockchain on their radar,” says Bob O’Brien, Global Real Estate & Construction leader, Deloitte & Touche LLP.

Millennials have often been unfairly characterized as valuing passion over performance and fulfillment over hard work, all while expecting the corner office. But do these stereotypes hold up? To find out, Deloitte LLP conducted a study based on Business Chemistry®, a behavioral assessment framework that matches individuals to one (and sometimes two) of four types: Pioneers, Drivers, Guardians and Integrators. The results might surprise senior executives; more importantly, the study may help leaders glean new insights into how to effectively manage millennials.

In 2016 MetLife spun off a substantial portion of its U.S. retail segment as Brighthouse Financial. Anant Bhalla was tapped to become the new company’s first CFO, bringing to the position experience in finance and treasury, as well as in risk management, corporate strategy and product management. Mr. Bhalla offers lessons for CFOs that may apply not only to spin-offs but also to other complex transactions, in this conversation with Gary Shaw, vice chairman and U.S. insurance leader, Deloitte & Touche LLP, and John England, senior partner, audit and assurance, Deloitte & Touche LLP.

About Deloitte Insights

Deloitte’s Insights for CFOs provides financial executives a customized resource to help them address the strategic, operational and regulatory issues they face in managing their finance organizations and careers, with top-line digests, research, perspectives and technical analyses.